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Who's looking out for us? Part two

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I read the other day that a large broker-dealer expressed regret about having to raise fees for a class of representatives.  “Raising fees” is likely to be a euphemism, in our business, for reducing rep compensation. (Many broker-dealers today are also advisory firms, so the term broker-dealer or BD assumes an advisory is likely in the background.) The fees will apply — in advance of expected regulatory rulings — to “one-person” shops.   

It is not necessarily wrong and may be entirely right, but that’s not the point. 

Did the Financial Services Institute, the Financial Planning Association, Investment Management Consultants Association or the Society of Financial Service Professionals step into the situation or comment? Did any organization that suggests it has the best interests of its members — that would be us — say a word? If any organization stepped forward, it did not make news in the investment media, at least not that I noted. Did I miss a statement? If anyone saw anything, please let me know.

Broker-dealers and wire houses take fees that seem to range from 65 percent to 10 percent of what representatives produce in revenue. Plus, each receives additional funds and support from vendors and allowances. Additionally, BDs charge representatives for insurance and online software, and… Well — suffice it to say — there are a number of ands.  As I said last week, BDs now opine that they, not us, “own” the business we produce.     

Being in the BD business has got to be a good thing. It seems there are dozens advertising for our business in magazines weekly and often by direct mail, too. 

When broker-dealers have annual meetings, a great deal of the meeting costs are paid by vendors, who trade dollars, paying the BD for access to its representatives. These dollars are often used by the BD to pay for speakers and some meals. The representatives pay their own travel costs and hotel room charges. In some cases, my guess would be that the BD has little actual expense. 

On the other hand, BDs spend revenue on compliance and education, good things for representatives and advisors indeed, and they build investment models and screen investment companies before entering into selling agreements.   

As to organizations, I spend a great deal of money annually on membership fees to organizations and, in order to attend organization-sponsored events, additional sums. I am sure you do, too.    

I am absolutely not against broker-dealers. I think they provide a layer of protection that most representatives could not afford on their own, and most are a needed part of the investment landscape. Indeed, I like my BD. However, I think when the BD, FINRA and the SEC are all on the same team, so to speak, there is often no one to speak for the representative, which is why I keep asking this question: Who speaks for us?

Have a great week and keep enjoying summer.  

For more from Richard Hoe, see:

Who’s looking out for us?

Adventures on Wall Street